The government is poised to question Reliance Industries’ decision to commit 40 million metric standard cubic metres of gas per day from its find in the Krishna-Godavari basin to state-owned NTPC and the Anil Ambani-controlled Reliance Natural Resources.
According to the demerger plan among the Ambani siblings, Reliance Industries has committed to supply 28 million metric standard cubic metres of gas to Reliance Natural Resources on the same terms as the NTPC bid and another 12 million metric standard cubic metres in case the NTPC contract does not materialise.
The issue is subject of a dispute before the Bombay High Court between the Mukesh Ambani-controlled Reliance Industries and Reliance Natural Resources on the one hand, and Reliance Industries and NTPC on the other. The government plans to become a party to the court case at an appropriate time, according to sources.
Reliance Industries has also sought government approval to sell gas at $4.34-4.58 per million British thermal unit. However, the issue has been referred to a group of ministers headed by External Affairs Minister Pranab Mukherjee and a final decision may be linked to a gas use policy the government is planning o unveil soon.
The overwhelming legal opinion available with the government states that according to the production sharing contract, Reliance Industries is “not entitled to full production from the field but only to a portion of the production which is equivalent to its recovery of contract costs (cost petroleum) and share of profit petroleum.”
The gas field in the Krishna-Godavari basin is expected to have a peak production of 80 million metric standard cubic metres for a period of six years. Gas is expected to flow from the field in June 2008.
Experts say Reliance Industries is entitled to commit only its share of cost and profit petroleum entitlement to buyers and does not have the right to commit the government’s share and the share of the other partner in the consortium---Niko Resources.
"Profit petroleum is divided between the contractor and the government based on a pre-defined investment multiple and ranges between 10 per cent to 85 per cent. Further by virtue of an annual cost recovery limit of 90 per cent, the government will get profit petroleum from the date of first production,” the sources said.
Moreover, they argue that under the Oilfields Regulation and Development Act, 1948, the ownership of petroleum resources rests with the government. The government has merely granted a petroleum mining lease in the name of Reliance Industries and Niko Resources for exploration and exploitation of petroleum resources.